2021 (12) TMI 930 - AT - Income Tax

Service tax receipts excluded from income calculation under section 44BB.

DCIT, Circle-II, International Taxation, Dehradun Versus Ensco Maritime Ltd.

DCIT, Circle-II, International Taxation, Dehradun Versus Ensco Maritime Ltd. - TMI Issues Involved:1. Whether service tax is includable in the gross revenue for computing profits under presumptive provisions of section 44BB of the I.T. Act, 1961.Detailed Analysis:1. Background and Contention of the Assessee:The assessee, a non-resident company, offered revenues to taxation under section 44BB of the Income Tax Act, 1961. The Assessing Officer found that the service tax received was not added to the gross revenue chargeable to tax under section 44BB. The assessee contended that statutory charges, such as service tax, cannot form part of the amount for the purpose of deemed profit under section 44BB, as they are in the nature of reimbursement and not income-generating receipts. The assessee argued that it acted merely as a collection agency for the government.2. Assessing Officer's Stand:The Assessing Officer opined that for presumptive determination of the assessee’s profit, the amount received from customers against its service tax obligation must be considered as part of the receipt. Consequently, the service tax amount was added back for calculating the gross receipts on which the presumptive tax rate was applied.3. Revenue's Argument:The Revenue argued that section 44BB is a self-contained code providing for computation of profits at a fixed percentage of gross receipts, and all deductions, exemptions, and exclusions are deemed to have been allowed. They cited various judicial pronouncements, including the Hon'ble Uttarakhand High Court's consistent rulings, to support that the aggregate amount received, including service tax, should be included in total income for taxation under section 44BB.4. Assessee's Response:The assessee's representative cited the decision of the Hon'ble Delhi High Court in DIT vs Mitchell Drilling International Pty. Limited, which held that service tax being a statutory levy should not form part of gross receipts as per section 44BB. The representative argued that this judgment covers the issue in favor of the assessee.5. Tribunal's Observations and Decision:The Tribunal reviewed the rival submissions and relevant records, noting that the issue of excluding service tax from gross receipts is covered by the Hon'ble Delhi High Court's judgment in Mitchell Drilling International Pty Limited. The Tribunal highlighted the following key points from the judgment:- Section 44BB introduces the concept of presumptive income, taxing 10% of amounts paid or payable for services provided in connection with mineral oil prospecting or extraction.- The court determined that service tax collected by the assessee and passed on to the government does not form part of gross receipts for computing presumptive income under section 44BB.- The court referenced the Supreme Court's decision in CIT v. Lakshmi Machine Works, which concluded that taxes like excise duty and sales tax do not have any element of turnover and thus should not be included in total turnover for specific tax computations.The Tribunal also noted that the CBDT's circulars clarified that service tax does not partake the nature of income and should not be included in the gross receipts for tax computation purposes.6. Conclusion:Respectfully following the judgments of the Hon'ble Delhi High Court and the Hon'ble Uttarakhand High Court, the Tribunal concluded that service tax receipts do not form part of the receipts for computation of income under section 44BB of the Income Tax Act. Consequently, the appeal of the revenue was dismissed.Order Pronounced:The order was pronounced in the open court on 29/11/2021. The appeal of the revenue was dismissed.